MALAYSIA TOURISM AND ECONOMIC GROWTH:

INPUT OUTPUT ANALYSIS

By

ANUSUYA A/P RAVINDRAN

MASTER OF ECONOMIC

UNIVERSITI UTARA MALAYSIA

December 2014

MALAYSIA TOURISM AND ECONOMIC GROWTH:

INPUT OUTPUT ANALYSIS

By

ANUSUYA A/P RAVINDRAN

Thesis Submitted to

Othman Yeop Abdullah Graduate School of Business,

Universiti Utara Malaysia,

In Fulfillment of the Requirement for the Master of Economic.

PERMISSION TO USE

In presenting this project paper in partial fulfilment of the requirements for a Post

Graduate degree from the Universiti Utara Malaysia (UUM), I agree that the Library

of this university may make it freely available for inspection. I further agree that

permission for copying this project paper in any manner, in whole or in part, for

scholarly purposes may be granted by my supervisor or in their absence, by the Dean

of Othman Yeop Abdullah Graduate School of Business where I did my project

paper. It is understood that any copying or publication or use of this project paper

parts of it for financial gain shall not be allowed without my written permission. It is

also understood that due recognition shall be given to me and to the UUM in any

scholarly use which may be made of any material in my project paper.

Request for permission to copy or to make other use of materials in this project paper

in whole or in part should be addressed to:

Dean of Othman Yeop Abdullah Graduate School of Business

Universiti Utara Malaysia

06010 UUM Sintok

Kedah Darul Aman

ABSTRACT

Tourism sector is an important sector that many countries are focusing on the

development of tourism sector. There are many studies show there is a significant

relationship between tourism sector and economic growth. The objective of this

study is to see how significant the tourism sector extension would give impact on the

Malaysia GDP and other macroeconomics aspects. The method used in this study is

input output analysis. Using Malaysia input output table 2010, the 124 commodities

were aggregated into main sectors in Malaysia and disaggregate the tourism sector.

After that, the technical coefficient were calculate to the see the direct requirement of

input needed by the sector to produce outputs. Then the multiplier effect which is the

output multiplier and export of tourism sector multiplier and also the backward and

forward linkages between tourism and non-tourism sectors in Malaysia. The

multipliers shows that the tourism sector contributes to Malaysia economic by

generating output and the export of tourism sector. Besides that, the interlinkages

between sectors shows that there are strong linkages between tourism sectors with

other sectors. It creates the demand and supply of outputs that can stimulates the

economy.

ABSTRAK

Sektor pelancongan adalah penting bagi negara yang mementingkan pembangunan

ekonomi. Banyak kajian menunjukkan terdapat hubungan signifikasi di antara sektor

pelancongan dan pertumbuhan ekonomi. Objektif kajian ini ialah untuk melihat

sejauh mana pembangunan sektor pelancongan memberi kesan terhadap

pertumbuhan ekonomi dan aspek makroekonomi yang lain. Keadah kajian yang

digunakan adalah analysis input output. Dengan menggunakan jadual input output

2010, 124 komoditi telah diagregatkan kepada 8 sektor di malaysia dan sektor

pelancongan dipisahkan. Kemudian kesan pengganda and hubungan antara sektor

telah dikaji. Kesan pengganda menunjukan sektor pelancongan kepada pengeluaran

dan eksport sector pelancongan. Selain itu, hubungan yang kuat diantara sektor telah

diperolehi dimana permintaan dan penawaran pengeluaran akan membantu dalam

pertumbuhan ekonomi.

ACKNOWLEDGEMENT

First and foremost, my humble gratitude and appreciation to God , for enabling me

proceed with this Project Paper work until its final form.

I am greatly indebted to my supervisor, Dr Mukaramah binti Harun who has made a

significant contribution until the completion of this research and deserves special

thanks for her kindness, patient, generosity and guidance when supervising my work.

My thanks also to my examiner, Dr .............................................................................

for his/her support in order to make this research more meaningful.

Finally, special respects and thanks to my beloved father, Mr. Ravindran Kannan

who inspires me to succeed now and hereafter. My special respects and thanks also

goes to my mother, Mrs. Murugasevary Raman for her unconditional love and

encouragement, and for my family and friends for being supportive throughout my

study at University Utara Malaysia.

Last but not least, I am grateful to God for giving me faith, will and strength to

complete my study.

Thank you.

TABLE OF CONTENT

CERTIFICATION OF THESIS WORK

PERMISSION TO USE

ABSTRACT

ABSTRAK

ACKNOWLEDGEMENT

TABLE OF CONTENTS

LIST OF TABLE

LIST OF FIGURES

1. CHAPTER 1: INTRODUCTION 1

1.1. INTRODUCTION 1

1.1.1. HISTORY OF MALAYSIA TOURISM 3

1.1.2. CONTRIBUTION OF MALAYSIA TOURISM 5

1.2. PROBLEM STATEMENT 14

1.3. OBJECTIVE OF STUDY 17

1.3.1. GENERAL OBJECTIVE 17

1.3.2. SPESIFIC OBJECTIVES 18

1.4. SCOPE AND LIMITATION 18

1.5. SIGNIFICANT OF STUDY 19

1.6. STUDY OUTLINE 20

2. CHAPTER 2: LITERATURE REVIEW 21

2.1. INTRODUCTION 21

2.2. OVERVIEW OF INTERNATIONAL TOURISM 21

2.3. OVERVIEW OF MALAYSIA TOURISM 23

2.4. EMPIRICAL REVIEW ON RELATIONSHIP BETWEEN TOURISM

AND ECONOMIC GROWTH 23

2.4.1. INPUT OUTPUT ANALYSIS 23

2.4.2. COMPUTABLE GENERAL EQUILIBRIUM (CGE) 27

2.4.3. CAUSALITY TEST 29

2.5. INPUT OUTPUT TABLE 29

2.6. MULTIPLIER EFFECT 31

2.7. FORWARD AND BACKWARD LINKAGES 32

2.8. CONCLUSION 33

3. CHAPTER 3: METHODOLOGY 34

3.1. INTRODUCTION 34

3.2. DATA RESOURCES 34

3.3. TYPE OF STUDY 35

3.4. TECHNIQUE OF DATA ANALYSIS 35

3.5. BASIC INPUT OUTPUT ANALYSIS 38

3.6. TOURISM MULTIPLIERS 41

3.6.1. OUTPUT MULTIPLIER 42

3.6.2. EXPORT OF TOURISM MULTIPLIER 43

3.7. INTERLINKAGES BETWEEN TOURISM AND NON TOURISM

SECTOR 43

4. CHAPTER 4 : RESULT AND DICUSSION 45

4.1. INTRODUCTION 45

4.2. TECHNICAL COEFFICIENT 45

4.3. MULTIPLIER EFFECTS 48

4.3.1. OUTPUT MULTIPLIER 49

4.3.2. EXPORT OF TOURISM SECTOR 51

4.4 INTERLINKAGES BETWEEN TOURISM AND NON

TOURISM SECTORS 53

5. CHAPTER 5 : CONCLUSION AND RECOMMENDATION 56

5.1 INTRODUCTION 56

5.2 SUMMARY OF FINDING 56

5.2.1 RESEARCH SUMMARY 56

5.2.2 FINDING SUMMARY 57

5.2.2.1 OBJECTIVE ONE 57

5.2.2.2 OBJECTIVE TWO 57

5.3 RESEARCH IMPLICATION 58

5.3.1 RESEARCHERS AND ACADEMICIANS 58

5.3.2 MINISTRY OF TOURISM 58

5.3.3 PRIVATE SECTOR, LOCAL BUSINESSES AND

PEOPLE 59

5.4 RECOMMENDATION 59

5.5 CONCLUSION 61

REFERENCE 63

APPENDIX 68

List of Table

Table 1.1 Tourist Arrival and Receipts in Malaysia 6

Table 1.2 Top Ten Tourist Arrival by Countries Nationality 2012 7

Table 1.3 Key of Statistic of Domestic Tourism 2012 and 2013 8

Table 1.4 National and International Tourism Expenditure 10

Table 1.5 Hotel Occupancy Rate by 2012 and 2013 12

Table 1.6 Employment in Tourism Sector 2005-2008 13

Table 1.7 Contribution of Tourism Sector to GDP 14

Table 1.8 Contribution of Tourism to Malaysia Employment 16

Table 4.1 Output Multiplier of Main Sectors in Malaysia 50

Table 4.2 Output Multiplier of Tourism Subsectors in Malaysia 51

Table 4.3 Export of Tourism Multiplier Main Sectors in Malaysia 52

Table 4.4 Export of Tourism Multiplier of Tourism Subsectors in Malaysia 53

Table 4.5 Backward And Forward Linkages Between Sectors in Malaysia. 54

List of Figure

Figure 3.1 Flow of Data Analysis 37

Figure 3.2 A General Structure of Input Output Table. 38

1

CHAPTER 1

INTRODUCTION

1.1 Introduction

For past six decades, international tourism have shown a huge development and also

experiencing continued diversification. Experiencing continued expansion tourism is

becoming one of the largest and significantly growing economic sector. International

tourist arrivals grew by 5% in 2013 which is 1087 million arrival worldwide. This

shows an increment from year 2012 with 1035 million arrival million (UNWTO,

2014). Tourism industry which already growing since ancient time found successful

in generating income of a countries. Number of tourist destination are growing

bigger and bigger. According to Khaleed (2009), tourism is one of the method to

overcome macroeconomic problems. By focusing in tourism sector brings promising

benefits to the country as it is one of the tool to generators of income and

employment creation. Tourism based development plays a vital pivotal role in

contributing to its GDP growth both in developed and developing countries.

Nowadays many countries focusing on tourism sector as a tool to develop their

countries in term of many facets. Countries mainly developing countries are

promoting and sustaining a world class tourism to generate economic growth.

Developing countries are trying to enact policies to improve their tourism industry as

a tool to develop their foreign exchange earnings. Malaysia are never left out in

promoting their tourism in many ways. According to Elsadig and Abdur (2011) said

that Malaysia is becoming of the leading tourist destination competing with other

2

popular tourist spots around the world. Besides that, those countries worldwide,

including Malaysia, have a successful tourism sector, is often measured in dollars or

specifically by the number of international tourist arrived and the income they bring

in (Baharuddin, Ahmad, Jamil & Kong, 2000)

Malaysia is located in south East Asia and divided into peninsula Asian mainland

and third of Borneo Island. Malaysia have total land mass of 329,845 square

kilometres (127,354 sq. mi). Geographically Malaysia having 11 states with 2

federals territories (Kuala Lumpur and Putrajaya) form peninsular Malaysia.

Peninsular Malaysia is separated by the South China Sea from east Malaysia which

includes Sabah and Sarawak and also Labuan the third federal territory (Tourism

Malaysia).

In Southeast Asia, Malaysia is one of a top tourist destination having an endless

range of attractions for many types of tourist. Malaysia considered as a unique

country and described as ‘Asia in miniature’ because the uniqueness of various

cultures. The multicultural structure of Malaysia is filled with the cultures of three

main ethnics such as Malay, Indian and Chinese. Besides that, there are complement

from minority ethnics such as aboriginals and Eurasian ethics such as Iban, Dayak,

Melanau, Kadazan, Bajau and others. By this, Malaysia can be best described as a

place, allowing the convergence of cultures.

Nevertheless, the huge biodiversity of flora and fauna in Malaysia have attracted

number tourists to visit Malaysia. As there is massive development on the tourism

3

sector, Malaysia government have step into an effort to diversify the economy and

not solely depend on exports. Government started to focus on tourism industry by

having policies and promotion to attract tourist around the world. By this the tourism

sector is the second engine that help the growth of the country for developing global

competitiveness. This industry effects positively on the Malaysian economy for

increasing foreign exchange earnings, and employment opportunities (Bhuiyan et al.,

2013).

1.1.1 History of Malaysia Tourism

Earlier, before independence in 1957 Malaysia economy was only focusing in

agriculture sector such as tin, rubber and oil palm. At that period, tourism doesn’t

give any effects on Malaysia economy. In 60’s tourism in Malaysia started as a new

sector in the economic sector for the starting there was a slow growth. A tourist plan

was added into the country’s 1971-1975 plan and this shows the beginning of

tourism contributing in Malaysia’s economic. Malaysia government tried to develop

Malaysia tourism and in year 1972 Malaysia government established Tourist

Development Corporation of Malaysia (TDC) under former Ministry of Trade and

Industry. However Malaysia give more attention on 1980’s due to the fall in oil price

and world’s economic crisis. Beside economic, tourism sector gives positive impacts

on foreign exchange earnings, job opportunities and tax revenues in 1980s. In 1987,

another department was established called the ministry of culture, Arts and Tourism

(MoCAT) and TDC has emerged to this department in year 2004, became Ministry

of Tourism. Malaysia government have brought up many plan in order to encourage

and improve local and private investment in tourism industry.

4

In 2001, Malaysia government had created fund to help investors which is tourism

infrastructure fund with RM 700 Million allocation and increased the fund to RM 1.2

billion in 2005 and special fund for tourism infrastructure with allocation of Rm 400

Million. In 1992, TDC was replaced by Malaysia Tourism Promotion Board

(MTPB). MTPB function according to the Malaysia Tourism Promotion Board act

1992 are:

To stimulate and promote tourism to and within the country

To stimulate, promote and market Malaysia as a best destination for tourism

in international and domestic arena.

To co-ordinate activities relating to tourism conducted by any organisation ,

government or non-government agencies and;

To recommend to the minister as to create of appropriate methods, measures

and programmes to facilitates or stimulate the development tourism industry

in Malaysia and to implement or assist in the implementation of these

recommendations.

In 2012, MTPB have 36 overseas and 9 marketing representative offices in 29

countries. Malaysia has a strong position today as tourist destination. By realising

the strong potential in tourism sector globally, Malaysia government is taking steps

to develop this service sector together with the collaboration private sectors to bring

benefit to all.

5

1.1.2 Contribution of Malaysia Tourism

Tourism sector plays important role in many economic facets in Malaysia. Malaysia

has been and still an attractive tourism destination in the world. Attracting more and

more international tourist to Malaysia been a main focus of Malaysia government,

besides development interesting tourist destination such as Langkawi Island, Pangkor

Island, Cameron highland and many more. Besides that, the natural and cultural

tourism combined with heritage and multicultural aspects such as and the tropical

climate of Malaysia creates a sustainable tourist development.

Malaysia have brought in number of international tourist around the world year by

year. From the Table 1.1 below, it can be seen that the number tourist arrival

increase year by year. This table shows the arrival of tourist starting from the year

1998 till 2013 which shows a constant increment. In year 1998, tourist arrival was

5.56 million and 1999 there an increase in the tourist arrival which is 7.93 million. It

increase more in year 2000 to 10.22 million. Continue to increase up to 12.78 million

and 13.29 million in year 2001 and 2002 respectively. In year 2003, there was slight

drop in the tourist arrival which was 10.58 due to the SARS and Gulf War in 2003,

but in year 2004 until 2013 the number of tourist to Malaysia increase significantly.

In year 2013 the number of tourist arrive was 25.72 million which shows a good

number of tourist visited Malaysia. Beside arrivals, receipts also shows a drastic

increment starting year 1998 till 2013. In year 2013, Malaysia have performed more

6

than expected in term of tourist receipt of RM 65.44 billion exceeding the initial

target which is RM 65 billion.

Table1.1: Tourist Arrival and Receipts to Malaysia

Source: Tourism Malaysia, 2014

Malaysia have tourist around the world coming to Malaysia due to many factors that

attract international and also domestic tourist. According to UNWTO, Malaysia is

the 10th

most visited country in the world, having more than 25 million tourist visited

Malaysia last year. Table 1.2 below shows the top ten tourist arrival by countries of

nationality in year 2012. Tourist from Singapore have visited Malaysia the most with

the number of 13.01 million, which is 51.99% from the total of tourist arrivals.

Following by Indonesia (2.38 mill), China (1.56 mill), Thailand (1.26mill), Brunei

7

(1.26 mill), India (0.69 mill), Philippine (0.508 mill), Australia (0.507 mill), Japan

(0.47 mill), and United Kingdom (0.41 mill).

Table 1.2: Top Ten Tourist Arrivals by Countries of Nationality

2012.

Country of Nationality Number of tourist arrival

( million)

Total of tourist arrivals

(%)

Singapore 13.01 51.99

Indonesia 2.38 9.52

China (including Hong Kong

and Macau )

1.56 6.23

Thailand 1.26 5.05

Brunei 1.25 5.03

India 0.69 2.76

Philippine 0.508 2.03

Australia 0.507 2.02

Japan 0.47 1.88

United kingdom 0.402 1.61

Source: Tourism Malaysia with the cooperation of Immigration Department, 2012

Besides having international tourist, Malaysia with attractive tourist destination have

also attract domestic tourist. Domestic tourist do contribute to the tourism sector.

The number of domestic tourist taking vacation is bigger than international tourist in

most countries (Weaver and Oppermann, 2000). According to the Malaysian

Ministry of Culture, Arts and Tourism (MOCAT), domestic tourism receipts

8

increasing at estimated 15% a year, and surveys done by the tourist office indicated

that over 50% of hotel bed-nights were occupied by domestic tourists (The

Economist Intelligence Unit, 1994).

Tables 1.3 shows the key statistic of domestic tourist in Malaysia for year 2012 and

2013. The number domestic tourist should be taken into consideration because

domestic visitor will also help to improve the tourism sector. In 2013, it shown that

152.9 million visitor was recorded with an increase of 8.1 % compared to 2012 with

141.4 million visitors. The number trip of domestic visitor increase from 174.4

million in 2012 to 193.3 million in 2013 with growth of 10.8 %. A total of RM54.0

billion was spent for domestic tourism in 2013 as against RM47.8 billion registered

in 2012. Meanwhile, the average expenditure per trip registered RM279 in 2013, an

increase of 1.8 per cent from 2012. The growth of domestic visitors’ expenditure was

driven by the increase in the number of visitors and trips in 2013.

Table 1.3: Key statistics of domestic tourism, 2012 and 2013

Source: Department of Statistic Malaysia, 2013

9

During 1980’s in order to overcome balance of payment deficit, Malaysia

government planned to bring up a strong and developed tourism sector as an

alternative source of foreign exchange. Improving tourism gives positive impact on

development of direct tourism related sector and indirectly related sector. Thus,

tourism generates the economics of developing countries and its importance is

gaining huge recognition. Now Malaysia and other developing countries considering

tourism as one of the important to of development of economy and also gain

attention from government’s industrial strategy. Malaysia government try to increase

its allocation on the development of the industry over years. It has been increased

from RM605.5 million in the 7th Malaysian plan to RM1009.0 million in the 8th

Malaysian plan period, experiences 60% increase in its allocation (EPU, 2001). In

the 9th Malaysian plan period, the allocation reached to RM1367.0 million (EPU,

2006).

Development of tourism sector do help the growth in Malaysia economic. Its

contribution in economic growth is very important as it gives impact on growth

sector directly related to tourism and also indirectly related. Tourism sector

contributes in sales and production of output, employment, tax revenue and income

(Horvath and Frechtling, 1999). The income generated by tourism through tourist

expenditure are important earning for the country. By this the public and private

sector can generate income via inter- sector linkages their earning can generate

earning, besides creating employment opportunity to the locals. According to

Department of Statistic Malaysia (2013), every year the amount of expenditure done

by domestic and international tourist is raising because Malaysia is the best tourist

destination and also number services beside interesting activities can be done here.

10

Table 1.4: National and International Tourism Expenditure

Source: Tourism Satellite Account ( TSA) 2005-2012, 2012

Table 1.4 shows the national and international tourist expenditure occur in Malaysia

from year 2005 till 2012. In 2005 national tourist expenditure is RM 28 177.6 million

and international tourist expenditure was RM 42.183.2 million. In 2006 the

expenditure of both national and international tourist expenditure have increased to

RM 32 294.4 million and RM 48 264.3 million. Also in 2007, there was a drastic

increase by RM 39,109.0 million and RM 59,267.1 million total expenditure of

national and international tourist. In 2008, there declining rate where the expenditure

of national tourist were at RM 32,069.2 million but there is a rise in international

tourist expenditure which was at RM 64, 370.1 million. Then there are continues

rising in both national and international tourist expenditure.

11

The tourists will spend in Malaysia. Transaction happens in Malaysia will help value

of Malaysia currency increase. Besides that, many transaction such as hotel services,

restaurant, transportation services and many others would help economic growth and

also due to high demand for certain sector will help the sector to develop and create

job opportunities to local people.

According to Dritsakis (2004), the most direct effect happen within some sectors for

instead, hotels and restaurants, wholesale and retail trade, transportation and business

services. Meanwhile indirect effects is to the other sectors that indirectly related to

the development of tourism sector. Since numbers of international and domestic

tourist visit Malaysia, the number of hotel and restaurants have increased drastically

over years all over Malaysia. The hotel industry is consist of five star, four star,

motels, chalet, homestays and many more. The demand for hotel industry increase as

the arrival of international tourist visit Malaysia increase.

According to website of Tourism Malaysia, in 2013 the countries average hotel

occupancy rate rose to 62.6% than 62.4% in 2012 and 60.6% in year 2011. This is in

tandem with the increase in international and domestic tourists. In year 2013 Pahang

recorded the highest occupancy rates at 80.4%. The Federal Territory of Kuala

Lumpur and Selangor recorded the second and third highest occupancy rates of 69.5

% and 67.5% respectively.

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Table 1.5: Hotel occupancy rate by state 2012-2013

Source: Tourism of Malaysia, 2013

Tourism sector have significantly gives positive impact on employment in Malaysia.

The rise in many sector which is related to the tourism lead to increase in labour

demand. Most of the sector in tourism sector are relatively labour intensive and the

development of this sector would require for more labour to work in this sector.

Other than that, the strong connection between sectors such as transportation, retail,

utilities, food and beverages as well as financial services. In Malaysia there are

many higher education institution are offering programmes on tourism and

hospitality which creates thousands of graduates to works in this tourism sector. By

creating job opportunities, this will also help low income group to upgrade their

lifestyle by involving in tourism related small business or activities such as rural

13

homestay programme. By this Malaysia can overcome one of the macroeconomic

problem.

Table 1.6: Employment in Tourism Sector 2005 - 2012

Source: Tourism Satellite Account (2005-2012)

From the table above, it can been seen that annual changes in the employment in the

tourism sector shows a drastic. Overall the employment in 2012 have increased by

4.7 % compared to 7.8 % in recorded in 2011. The share of employment in the

tourism industry for 2012 was 16.4%, which shows rise from year 2011, 16.2 % and

in year 2012 it was the highest share within the eight years period. Total employment

recorded 12.7 million in 2012, higher than 2011 which with 12.2 million persons

14

Tourism plays crucial role in contribution of GDP. Tourism sector will generate

employment and income which lead to a positive tourism balance of payment.

Besides it also will stimulate the supply of goods and services of sectors of tourism

due to demand of tourist and will generally increase the level of economic activity in

the country. This will lead to the development and the rise in GDP.

1.2 Problem Statement

Tourism been a sector that boost the development of a country. After seeing at the

potential of tourism sector towards economic growth, government involves on the

extension of the sector as it give significant impact on the economy. There are many

research done on the relationship between tourism sector and economic growth.

There is a positive relationship in tourism sector and economic growth. As the

tourism sector develop, the economic growth would also increase accordance to it.

Malaysia government is giving importance to this sector because it creates job

opportunity either in direct or indirectly sector, increase sales and profit, income and

many more. Direct sectors such as hotel, restaurant, and transport are the sector

which directly involve in the sector and the indirect sector are such that that

contribute indirectly towards to the sector. Thus as many sector are involved in the

sector, the business and people received a lot of good effect from the sector. For

example, as more and more tourist visit Malaysia there will more transaction happen

where the local business would gain profit and also the job opportunity will be

created when this sector is developing which can reduce the number of

unemployment in Malaysia. Government are allocating a huge amount of money to

develop this sector and try to increase the benefit that can be gain from this sector.

15

Few thing should be taken into consideration such as even though the number of

tourist is increasing annually but Malaysia is fail to attract tourist from developed

country such as United States, Korea, Japan and other developed country. As

indicated in Table 1.2, it can be seen that the number of tourist from developed

countries such as Australia, Japan and United Kingdom less visit Malaysia. This

means that Malaysia fail to attract those developed count and not competitive enough

to bring tourist from rich countries. Although there is few matter that are lacking but

tourism sector is tremendously important as other sector in the development of the

economic. In term of Gross domestic product (GDP), there is a positive correlation

with the improvement of tourism

Table 1.3: Contribution of Tourism To Malaysia GDP

YEAR TOURIST ARRIVAL

(MILLION)

GDP

(BILLION)

2008 20.9 50.6

2009 22.0 53.1

2010 23.6 52.2

2011 24.6 55.9

2012 24.7 59.0

2013 25.7 70.6

Source: Department Of Statistic, Malaysia 2014

According to the Table above, there are a positive relationship between tourist arrival

and its contribution to GDP. In year 2008, there tourist arrival 20.9 million and the

total GDP is RM 50.6 billion. In 2009 the tourist arrival have increased to 22.0

16

million and also there is an increase to RM 53.1 billion in Malaysia GDP. In 2010,

tourist arrival went up to 23.6 million and in 2011 was at 24.6 million and there is

also increment in GDP RM 52.2 billion in 2010 and RM 55.9 billion 2011. As in

2012 the tourist arrival was at 24.7 million and the total GDP at that year was RM

59.0 billion. Lastly in 2013 the tourist arrival was at 25.7 million and the total GDP

was at RM 70.6 billion. From the table, the higher the arrival of tourism, the higher

to number of GDP will increase. This prove that the higher tourist arrival, the higher

the total GDP. This shows that tourism sector contribute the largest to GDP.

Not only to GDP, the tourism sector also given impact to the total employment.

Table 1.8: Contribution of Tourism to Malaysia Employment

YEAR NUMBER OF JOB

(‘000)

PERCENTAGE TO

TOTAL EMPLOYMENT

2008 780 6.9%

2009 810 7.4 %

2010 810 7.18 %

2011 800 6.6%

2012 820 6.5 %

2013 870 6.7%

Source: World Travel and Tourism Council, 2014

From the table above, there is a contribution tourism sector to the total employment

in Malaysia. In year 2008 number of job created by tourism was 780 000 and the

percentage contributed to the total employment was at 6.9 per cent. In 2009 job

17

created by tourism sector was 810 00 and the contribution to the total employment is

7.4 per cent. As for 2010, the total job created by tourism sector 810 000 and the 7.18

per cent contribution to the total employment in Malaysia. In 2011 800 000 and for

2012, 820 000 job created with contribution of 6.5 per cent and 6.7 per cent t6o the

total employment. From the table, there huge number of jobs opportunity created by

the sector.

It can said be said that it is important to develop tourism sector in order to improve

economic growth. In this study, the impact of tourism sector on the economic growth

by using multipliers effect and also interlinkages between sector in Malaysia

economic

The study uses multiplier effect to indicate that each Ringgit of direct expenditure

generate another Ringgit in output and the export of tourism sector. There are

research question on what this study will be done in order to answer those questions:

1.2.1 What is the total impact of tourism towards economic?

1.2.2 What is the contribution of tourism sector towards Malaysia output

1.2.3 What is the impact of tourism sector on export?

1.2.4 What is the backward and forward linkages between tourism related sectors

and non- tourism related sector

1.3 Objective Of Study

1.3.1 General Objective

18

The general objective of this paper to see on how tourism sector gives impact on

Malaysia economic as it is one of the main tool being use for economic growth.

1.3.2 Specific Objectives

I. To examine the total impact of tourism towards economy

II. To examine the contribution of tourism sector towards Malaysia output

III. To examine the effect of tourism sector on export

IV. To examine the backward and forward linkages between tourism related

sector and non-tourism related sector.

1.4 Scope And Limitation

The main objective of this study to see the impacts of tourism toward economic

growth by using input output analysis. Input output analysis can be used to estimate

the sectorial impact of changes of tourism on Malaysia economics. By using the

input output table, the impact of tourism on the Malaysia output and also the impact

of tourism on export can be determine. Besides that, the forward and backward

linkages can be seen between tourism related sector and non-tourism sector. By this

we can know how changes in tourism sector would affect the Malaysia economy.

The limitation in this study is limited data. The data collected is just from the input

output table published by department of statistic Malaysia. Thus this study is going

to see the impact of tourism on the economic growth through looking at the

19

production structure of the sector. There is other things matter in tourism beside the

production of the sector that can effect economic growth of Malaysia. Aspects such

as environment and social factors created from tourism that will also effect economic

growth should be taken into consideration.

Besides that, trade and technology factor play important part that can affect the

production of the sector over time. A drastic changes will happen in the sector if

there is any changes in trade or technology. Although input output table an important

tool which can measured the impact of tourism and other sector but it can be used

for short run purpose but not for long run as this method ignore important factors that

will bring drastic changes to the quantity of input and output produced.

1.5 Significant of Study

Since Malaysia is now focusing on the development of service sector to increase

GDP. Tourism is mainly in government’s attention to be developed as tourism has

potential to bring in tourist and this will create lots of positive effect to the

development of the country. By this study, it can be seen that tourism can increase

the investment and business opportunity. Seeing the potential in generating income

by the tourism sector it, the investors and businessman can invest in this sector and

open business to gain profit from the sector.

20

Other than that, policy maker and government can use this study can use the tables

on tourist arrival, tourist expenditure, hotel occupancy rate and other to plan policies

that related to tourism to improve the sector better. Tourism also playing an

important role in creating job opportunities. It creates around 1,331,000 jobs in 2010

and this tourism investment bring income RM 19.9 billion revenue in the same year.

It is estimated will reach RM 49.8 billion in year 2020. By looking as the potential

of tourism sector policy maker can develop policies related to tourism.

By using the input output table, we can see the linkages among various sector either

its directly related or indirectly related to tourism. The production processes are

always interdependent. The products of one sector are used in another sector while

the product of that sector will be used as input by other many sectors and changes in

any sector’s output would affect the production of another sector. So this can use by

sector to know better about the need, opportunity, profit and avoid the shortness of

supply of inputs.

1.6 Study Outline

This study is organized as follow: Chapter 2 reviews the releated literature on the

economic impact of the tourism sector using various input-output model in different

economies. Besides that the relationship between tourism and economic growth will

be review empirically. Chapter 3 describes the method and the source of data

collection besides discussing about the methodology used in the study. Chapter 4

discusses the results of economic multipliers and total economic impact of the

21

tourism sector in the country and also discusses about the forward and backward

linkages of sectors tourism sector. In the end, in chapter 5 will discuss the summary

of the finding, the conclusion and suggest few recommendation on overcome the

problem in tourism sector on economic growth.

22

Chapter 2

Literature Review

2.1 Introduction

In this chapter, collection of research will be reviewed to gather information from

previous research. In this literature review, some published information on an area

will be reviewed to support the objective of a research that will be conducted.

Article, journal, theses, newspaper and any academic material from accountable

website or publication will be use in order to attain the objective. This study is about

the impact of tourism on economic growth in Malaysia. In this section, reviews will

be done on the economic impact of tourism. There is a need to gather and investigate

upon the research done on the tourism to support the result in the end of this project

paper. This summary of literature review on economic impact of tourism will depict

by exploring research, looking at the methodology and their uses in attaining the

objective. In this section review on Malaysia tourism will be done, second the

empirical review on the relationship of tourism and economic growth and lastly, the

literature review on input output analysis.

2.2 Overview of International Tourism’s Impact on Economic

Tourism has become as one of a leading and one of the fast growing industries in the

world over year. As stressed by WTO (2003), definition of tourism is a process,

23

activity and result which from relationship and interaction among tourism, suppliers,

host government, host communities and surrounding environments that involves in

attracting and hosting of visitors. Tourism is a sector that obtaining attention in many

countries because of its contribution in the economic growth. Every year it been

reported that the number of international tourist arrival have grew significantly in

many countries which have directly and indirectly. International tourist arrival have

rose by 4.6% in the first half 2014. Tourist destination around the world have

received around 517 million international tourist from January till June 2014 which

is 22 million more than first half year of 2013 (WTTC , 2014). The increment of

international tourist arrival have led to increase of many economic aspect and

countries which taken tourism as key of economic development have gain a lot from

this sector.

Tourism is used as an engine to develop the economy of many countries around the

world. Tourism, in government’s view, will increase GDP of a country is important

because its lead to increase the standard of living, income per capita , business

opportunity , employment level and economic stability. Many government sees

tourism as a tool of development that will protect the environment and traditions with

minimum negative impacts (Liu & Wall, 2006). According to UNWTO 2014, the

total contribution of travel and tourism to GDP in 2013 was USD 6,990.3 billion

which is 9.5% of total GDP. Besides that, in 2013, the total contribution of travel and

tourism to employment including job which is indirectly supported by tourism

industry 8.9% from total employment and assume will increase by 2.5% in 2014.

24

2.3 Overview on Malaysia Tourism on Economic Growth.

In Malaysia, tourism is the fifth largest sector after oil, gas and energy, financial

services palm oil and financial services largest sector. Malaysia is now recognised as

the best tourist spot, ranking in top 10 best in arrival and in top 15 in global receipts.

Besides that, tourism give impact on Malaysia economy, generating RM 39.9 billion

in year 2009 to gross national income (GNI). It been assume that Malaysia’s tourism

industry will contribute income to RM103.6 million in GNI with RM 36 million

arrivals in 2020 (Malaysia, 2010). This industry effects positively on the Malaysian

economy for increasing foreign exchange earnings, and employment opportunities

(Bhuiyan et al., 2011). Malaysia has secured third position in tourist arrivals among

the Commonwealth countries after Britain and Canada. According to the statistics of

2005, tourism is contributing over 40% in the balance of payment of Malaysia and

becomes the key foreign exchange earner of the country (Malaysia, 2006). In 2006,

tourism contributed second largest foreign exchange earning sector after

manufacturing. Tourism earned US$18.1 billion in export revenue which is

representing 10 % of the total exports of Malaysia in 2006 (WTTC, 2006)

2.4 Empirical Review on Relationship between Tourism and Economic Growth.

2.4.1 Input Output Analysis

In this study, the relationship between tourism and economic growth will be studied.

There are many studies done on the tourism sector which lead to the economic

growth in different countries using input output analysis. As study done by Khan,

25

Chou and Wong in 1990 have used input output analysis. They used input output

transaction table of 1983 to see the impact of economic impact of tourism in

Singapore. This studies it shows that the tourism contributes 12.5% in GDP. The

tourism income multiplier is 0.94 which is lower than multiplier obtained by Heng

and Low (1990) but higher than Bahamas, Cayman islands and Fiji. Meanwhile, the

estimated tourism employment multiplier were 33 jobs per million of Singapore and

also output multiplier is 1.96 per Singaporean dollar and it nearly similar to the other

research which done by Heng and Low. The import multiplier were also used and

estimated to be 0.38 per Singaporean dollar.

Another research that written by Rashid et al. is an inter-sectoral analysis on

Malaysian economy concern tourism impact analysis in which static input output

analysis was the basic of the analysis. The author have used the 1983 input output

table to assume the impact of tourism for 1991 on economy. Resulting from tourist

expenditure, the direct and indirect impact on sectoral output, employment, non-

competitive imports and commodity taxes were estimated following with

questionnaire method in 1991. According to the research that, many sectors receiving

benefits from this tourism sector either directly or indirectly. The influence on

output, employment and commodity taxes by the contribution of tourist expenditure

found to be varied and small which is less than 5%. The study conclude that the other

sector do have strong technological linkages with other domestic supply sector,

therefore it is important to give to develop these strategic and non-strategic tourism

sector in designing tourism policy.

26

As emphasis Archer (1995) to see the importance of tourism on Bermudan‘s

economy. Archer have used input out model in his research. In early 1980s till 1992

due to worldwide recession, the arrival of Bermudan’s tourist receipt was decreasing.

Input output model were developed in year 1985, 1987 and 1992 to measure the

influence on income, employment, import and government revenue by specific

tourist sector for overnight and cruise passengers. The result of the finding is that the

tourism became the main source of employment even though tourism sector wasn’t

influence the foreign exchange and income for Bermudan economy. Besides that, the

income multiplier show improvement from 1.095 in 1985 to 1.257 in 1992 and

employment was 11500. In the end Archer suggested that Bermudian government

need to emphasis on strategies measures to improve the tourism product.

Surugiu (2009) a research done on Romania’s tourism. The author have employed

input output analysis as the tool to measure the impact of hotel and restaurants for

two different years, 2000 and 2005. The author have used output, value added,

earning and employment multiplier as a backward linkages and used Augustinovics

(1970) as the forward linkages for output, earning and employment. In this research

the output (1.736/1.560) and employment (0.023/0.005) multiplier in hotels and

restaurants reached higher value but in 2005, those regarding the value added

(0.781/0.837) and earning (0.269/0.276) were smaller than 2000. As for the forward

linkages coefficient, the result shows that hotel and restaurant have the lowest

interdependence means output forward linkages (OFL) is 1.077 in 2005 is low than

2000 which is 1.91. For the earning forward linkage coefficient shows the

importance of hotels are low 0.198 in 2000 and decrease to 0.171 in 2005.

Employment forward linkages (LFL) there is a change of 0.014 in employment due

27

to a change in the final payment of hotel and restaurant. Using the I-O year 2005, the

author have forecasted the final demand, intermediate consumption and value added

for hotels and restaurant in Romania. The forecast of the macroeconomic indicators

shows the final demand will reach up to 18.655 billion RON, intermediate

consumption 9.999 billion RON and value added 12.438 billion RON. As a

conclusion, the tourism sector can be effective even higher even double but with a

strong tourism industry and transport infrastructure and diversified services.

In 2009 Surugiu, Frent and Surugiu have used input output analysis to measure the

significant effect of tourism on Romania economy. The input output model

synthesizes the inter relationship between hotels, restaurants and travel agencies and

with other economic sectors. Other than that, input output analysis would also help to

predict the effect that occurs due to the changes in an economy. In this journal

backward and forward linkages were used to describe the increase in the production

of tourism would increase the demand for input from other sectors and also the

supply to other sector. These depict in general how tourism plays important role in

Romania economy.

The result that obtain from this research is backward linkage coefficients are placing

these tourism industries on the 11th positions. For input multiplier, a change of 1

Ron in the demand for hotels, restaurants and travel agencies results in a change in

the economy’s total output by 2.447 Ron. The income backward linkage for the

tourism activity indicates that 1 Ron increase in the final demand would increase the

income in the economy by 0.391 Ron. As it regards the EBL, this indicator is 0.029

and for the EFL it reaches 0.016. On the other hand, forward linkage coefficients

28

indicates a relatively low potential for hotels, restaurants and travel agencies to

increase the supplies for sectors which use the tourism product in their production.

The output forward linkage coefficient for hotels, restaurants and travel agencies

shows that a unit change in sector final payments will generate a total change in the

total output of the economy of 1.278 units. The forward linkage coefficient of 0.495

is placing the sector of the 17th position from 19th, indicating that the sector has a

higher capacity to create value added than output, incomes or jobs. The forward

linkage coefficient with respect to employment indicates that if the final payments of

hotels, restaurants and travel agencies sector increases by one unit the total change in

employment in the economy will be of 0.016.

2.4.2 Computable General Equilibrium (CGE)

Besides using input output analysis, there are many other researcher have used other

type of tools to examine the impact of tourism on the economic growth. Over the last

couple of years, however, there have been initial applications of CGE models to the

tourism field in many countries such as Australia (Adams and Parmenter 1995),

Hawaii (Zhou et al. 1997), Spain (Blake 2000), the UK (Blake et al. 2001) and the

US (Blake and Sinclair 2002). CGE models have been used to evaluate the

economic impact of increases or decreased in tourism demand and were developed to

overcome the many shortcomings of IO models (Blake et al, 2001)

Adams and Parmenter (1995) have analysis the impact of tourism expansions on

economic growth within certain regions in Australia the authors have computable

29

general equilibrium (CGE) model stimulating 10% growth of tourism for 117 sectors

in in Australia economy. The results of this research shows that an increase of 10%

of tourism would give positive impact which is exchange rate appreciation and

increase in import. The negative impacts are on traditional export sectors production

and declining balance of trade. The author have added here that even though

Queensland is one of the centres of tourism in the country but it experience a

downturn in economic growth due to the crowding out in exports sectors for

example agriculture and mining. Furthermore, it is suggested to that Queensland

should highly depend on traditional export which is declining due to an expansion of

international tourism.

Besides that, a study done by Blake (2000) estimates the effect of on 10 % increase

in tourism would affect the Spain economy by using the CGE model. As a result 10

% increase in tourism would affect the GDP by 0.05%, 0.61% increase in real

exchange rate and also a slight increase in household consumptions, domestic

tourism and investment. The finding shows that the benefit from the expansion of the

tourism would offset the increase in import and also decease in value of other export.

Zhou et al. (1997) analyse the economic effect of the declining tourism demand in

Hawaii. In doing so they draw comparisons as to the effectiveness of the I-O and

CGE analyses. They simulate a 10% decline in visitor expenditures in Hawaii’s CGE

and I-O models and compare the two results.it been found the decline of tourist

demand would drop the number of output produced by the tourism sector such as

transportation, hotels, restaurant and bars with smaller reduction in outputs for other

sectors. In General, IO results provide estimates with larger magnitudes than CGE

30

results because the I-O model does not allow prices to fall. The CGE model

apparently has specific advantages such as the ability to account for resource flows

between sectors, to show price effects and to allow greater modelling flexibility

2.4.3 Causality test

This paper was done to examine the impact long run economic growth of Greece

from 1960–I till 2000-IV and used causality analysis between real gross domestic

product, real exchange rate and international tourism earning. The result obtain from

Granger causality tests based on error correction models (ECM), this indicates the

presence of long-run relationships among these variables. The results of the causality

analysis denote that international tourism earnings and real exchange rate cause

economic growth with a “strong causal” relationship, while economic growth and

real exchange rate cause international tourism earnings with a “simply causal”

relationship. The results of the cointegration analysis suggest the existence of

cointegration relationship between the three variables (Dritsakis, 2004)

2.5 Input Output Table

Economic impact analysis is a way to estimate the effects from various economic

event or changes that occurs in area’s economy. Input output (I-O) model is the most

command method used to see the impact on the economic at regional and state level.

I-O model allow local communities, businesses and governments to estimate the

effect of types of economic changes in an area or community (Montana Department

31

of Labour And Industry, 2013). The input output analysis is a standard method to

measure the spread effects of the changes happen in final demand for the product in

an industry or sector (Surugiu, 2009). The basic information used in input output

analysis is the flow of product from each industry which is a producer to each of the

sectors, itself or others as a consumer (Miler and Blair, 2009). Bekhet (2010), the

basic I-O table describes rows showing “Who gives to whom?” and columns

showing “Who receives from whom?” in an economy.

The structure of each sector’s production activity is represented by appropriate

structural coefficient that shows the quantitative term of the relationships between

input and output. A set of linear equation interpret the interdependence among

sectors which express the balance between the total input and total output of each

good and services (Eurostat, 2008). The main need of in the input output analysis is

the input output table. An input-output table records the “flows of products from

each industrial sector considered as a producer to each of the sectors considered as

consumers” (Miller and Blair, 1985). The production process of each good and

services are always connected to each other. The product produce a sector will be

used as inputs by other sectors while the product of the process many be used by

other sector as input or also as final product. As the global becoming more

competitive, stronger interdepends between sector are created, deeper division of

labour and greater diversity and complexity of products , and the exchange of

intermediate product become more important. Thus this makes to see the impact and

estimating the consequence of changes in an economy is necessary (Eurostat, 2008).

By using the input output analysis, the estimation of the input output coefficient

which also called as the technical coefficient can be done. The technical coefficient

32

obtained by dividing each column of the transaction table with corresponding “total’’

column.

I-O tables give a comprehensive and detailed information about the sales and

purchases of goods and services among numbers of industries in the economy and it

also been used by planner, policy-maker and economist in tourism (Economic and

Social Commission for Asia and Pacific, 1990). The advantages of using Input

Output analysis as a tool to measure the economic impact are it will reveal the

interrelation of tourism industry with other industry in the country. Besides that, it

provide consistent and systematic approach to understand the economic impact on

certain economic and also able to determine the relative size of the tourism sector in

the overall economy and enables to see the comparison of tourism sector with other

sectors (Surugiu,2009).

2.6 The multiplier effect

Economists have long been interested in measuring the total impact upon output,

income and employment resulting from a given change in demand or investment. To

this end, the multiplier as developed by Keynes is one of the most useful analytical

techniques (Mieryk, 1967). Multiplier can be used to estimating the overall changes

in in economy due to changes in final demand. Among all the information provided

by input output, multiplier is most frequently used (Surugiu, 2009). Economic

multiplier measure the economic impact or effect in term of output, household

33

income or employment resulting from a change in the final demand within an

economy (Mazumder et al, 2009).

Multiplier is used to describe the final change in visitor expenditure and is central to

any measure of the economic impact of tourism (Archer, 1982). The larger the

multiplier, the greater the impact on unit of visitor spending in the local economy.

According to Krumme (2009) there a few multipliers which popularly used in the

input output analysis. First output multiplier which is expressed as the ration of

output changes due to increase in a unit in final demand. Secondly the employment

multiplier which is used to estimate the total employment attributable to the stimulus

per job or man-year of employment directly created. Income multiplier is used to

measure the changes income (wages, salaries and profits etc.) that happen due to the

changes in final demand.

2.7 Forward and Backward Linkages

We also can get useful interpretation from the transaction table, is the measure of

economic linkages in the economy. The I-O analysis show two results on analysed

sector which are backward and forward linkages. Highly linked regional economies

mostly will be self-sufficient than those with low linked. Other than that, this

economy less rely on inputs from outside source. By analysing the value of the off

diagonal element, the degree of linkages can be obtained from the input output table.

According to Deller, Sumathi, Marcouiller (1993) the bigger the value show tightly

linked economy, meanwhile smaller values shows that more open or looser economy.

34

Since Malaysia have is an open economy, the coefficient in the off diagonal being

very small. Using this linkage analysis, the strengths of intersectoral forward (FL)

and backward (BL) relationship between the tourism sector and other sector in the

economy can be determine. FL measures the importance of tourism industry from the

point as a supplier to the other industries and BL measures its relative important as

demander (Cai, Leung & Mak, 2006).

2.8 Conclusion

There are many research done using different methods to examine the economic

effect of tourism In this research the new input output table, 2010 which was released

in 2014 will be used. The multiplier impact of output and the export of tourism

sector will be examined and the backward and forward linkages will be examine

using 8 subsector of tourism in Malaysia.

35

Chapter 3

Methodology

3.1 Introduction

A research design is very essential procedure in methodology. It is a blueprint

containing the procedure for collecting information and methodology analysing the

data. Information gathered through the research design is to identify whether the

collected information is appropriate for answering the problem (Zikmund, 2003).

Section the data source and methodology will describe. First the data source and data

analysis method will be explained then continue with brief explanation on basic input

output analysis. Next the estimation of tourism economic multiplier which consist of

output multiplier and export of tourism multiplier. Lastly the backward and forward

linkages will be explained.

3.2 Data resource

The main data that need in input output analysis is the input output table .The data

used in this research is the 2010 Malaysia Input Output table and it is a secondary

data obtained from the Department of Statistic Malaysia. The department of statistic

Malaysia have uploaded the Input output table in their official website at

www.statistics.gov.my.

36

3.3 Type of study

Quantitative method will be used in this research. By using input output table, the

interrelationship of sectors in tourism industry itself and also with other sector can be

evaluate. In input output table, there are 120 commodity x commodity input output

matrix of Malaysia. The figures in the table shows the number of product that will be

used as input to produce other commodity and also a final product that can be

consumed. By using the figures in the table, tourism multipliers and also the

interlinkage of the between sector will be calculated.

3.4 Technique of Data Analysis

Input output analysis always been used to see the impact of changes in economic.

Due to cost and time saving, most of the researchers prefer to use this method to

estimate the influence of certain changes in an economy. The main data for this

research which is the input output table for year 2010 is obtained from the

department of statistic official website. The input output table contained with 124

commodity x 124 commodity which show the amount output produced and input

need by sector in Malaysia. Input output table of year 2010 will be used to do

examine the impact of changes in final demand on economic growth in Malaysia.

There are many sectors that fall under tourism sector and those sector directly serves

tourism sector.

In the input output table, 124 commodities will be aggregated and arranged main

sectors according to the list of 124 activity and 124 commodity classification

37

obtained from the department of Statistic Malaysia (2010). This will make to work

more easily than looking the data in term of commodity which is nearly 124

commodity. Besides that, we can only focus on the sector which is falls under

tourism sector and it total contribution to tourism sector itself and other sectors.

After aggregating the commodity into sectors, the table will be used to find the

technical coefficient. This technical coefficients later will be used to obtain the

multipliers such as output multiplier and the export of tourism sector multiplier by

using the formulas provided. The data in input output table will be analysed using the

Microsoft Office Excel to answer research objective. At last the result and the

estimation will be interpreted and explain using tables and recommendation on how

to improve the situation.

38

Figure 3.1: Flow of Data Analysis

Input output table, 2010

(Department of Statistic, Malaysia)

Aggregation of 124 commodity X 124

commodity

Malaysia Standard Industrial Classification

(2008)

(MISC)

Leontif Input Output Model

Microsoft excel

Output and tourism export

multiplier

Backward and Forward

Linkages

39

3.5 Basic Input Output Analysis.

Table below shows a very general view of I-O table which consist of four quadrants

which quadrant 1 (Q1), quadrant 2(QII), quadrant 3(QIII) and quadrant 4 (QIV)

Figure 3.2: A General Structure of Input Output Table.

Adapted from: Surugiu (2009), The Economic Impact Of Tourism. An Input Output

Analysis

In each quadrants, there are transactions have among various sector and also the

amount. QI shows the intermediate consumption. It is the basic of the input output

table. It represent the transaction for intermediate sales and purchases of goods and

services among firms. QII shows the final use of goods and services product local

and state government unit, investment and exports. QIII is the requirement of each

sector for primary input such as capital, land and labour and also the input absorb by

the sectors in the economy sector and outside of the country (import). In this QIII we

40

have imported commodities, taxes on products, subsidies on product, and gross value

added. Gross value added is the total of compensation of employee, other net taxes

on production and operating surplus, gross. The operating surplus, gross itself is a

total of consumption of fixed capital and operating surplus, net. In quadrant QIV,

there is no any transaction occurs in this this sphere as there is very few market

transaction reported in this section. The transaction table above can be also describe

as this following equation:

(1)

Where:

aij: the technical coefficient of sectors

Xij: amount of input sector other sector purchase from the selling sector tourism

sector

Xj: output for the tourism sector

In the output input model the total input is equal to total output which means the total

receipts by seller must balance with the total expenditure by buyers. Devkota (2003)

mention the three basic I-O table equation:

Intermediate input + gross value added = total inputs

Intermediate demand + final demand = total output

41

Total inputs = total output

Firstly the I-O model be turned into an analytical model and it can be done by

converting the interbranches into a matrix A form. Matrix A is also called as the

technical coefficient. By using this matrix A or technical coefficient, the direct

requirement of a sector can be known in order to produce a unit of its product. The

technical coefficient can be calculated by dividing the value from the transaction

matrix by total input

a ij =

Coefficient aij can be interpreted as the proportion of tourism industry total

production input of industry supplied by any other industry. Assume that xij = aij * Xj,

the equation (1) can be written by replacing xij and obtain this

(2)

Equation above shows that the production of each sector depends on the production

level of other sectors and also the final demand. From equation (2), total output (X)

equals to the sum of the total final demand for its output (Y) and intermediate

demand for its output

42

X=A*X + Y (3)

Then by solving equation (3) for total output we will get

X= (I-A)-1

*Y (4)

And thus

X= (I-A)-1

* Y (5)

I is identity matrix and (I-A)-1

is also known as Leontif inverse or also as the

interdependence coefficient or total requirements table. The last equation shows that

the product of a change in total final demand multiplied with (I-A)-1

is the change in

total output. Using the Leontif matrix which is matrix transformation which can be

used to calculate multiplier coefficient. These coefficient will depict all the indirect

effects.

43

3.6 Tourism Multipliers

Multiplier measures the impact of additional expenditure in happens in an economy..

Multipliers can be used to predict the change in the economy due to a change in final

demand. Multipliers are one of the important tool that mostly used in input output

analysis. In this study, tourism sector divided into seven subsectors

Manufacture of food and drink

Accommodation

Restaurant

Transportation

Communication

Finance and insurance

Amusement and recreational services

By using these subsector the multiplier effect will be computed.

To achieve objective I, output multiplier is used to examine the impact of tourism on

Malaysia output level

44

3.6.1 Output multiplier

The output multiplier shows how much one additional unit of tourist spending

increases the level of output in the Malaysian economy.

OM= (I-A)-1

x FD

OM=output multiplier

(I-A)-1

= inverse matrix

3.6.2 Export of Tourism Multiplier

To achieve the II objective, the export of tourism sector will be used. In this

multiplier, one additional unit of export of tourism sector would affect the level of

output can be obtained

EM= (I-A)-1

* E

EM=Export multiplier

45

(I-A)-1

= Inverse matrix

E= total export

3.7 Interlinkages between Tourism Sector and Non-Tourism Sector.

Linkages analysis is used in this research to achieve objective III which is to see the

interlinkages relationship between tourism related sector and non-tourism related

sector. Linkages analysis is always used to show the importance of sector that

produced goods and services. The linkages analysis were used to examine the

strength of intersectoral forward and backward relationship between tourism sector

and other sector The interdependence of production structure have been introduced

by Rasmussen (1956), Chenery & Watanabe (1958). One of the well know method in

this analysis is forward and backward linkages.

Backward linkages are also known as the column sums of the Leontief-inverse from

the demand-driven input-output model which measures its relative importance as

demander. Forward linkages is the row sums of the Ghosh-inverse from the supply-

driven input-output model measures relative importance of the tourism sector as

supplier to the other (non-tourism) industries in the economy. Besides these models,

direct input coefficients, and direct output coefficients, and hypothetical extraction of

sectors from the demand-driven and supply-driven model are used to define key

sectors (Oosterhaven, 2008).

46

Chapter 4

Result and Discussion

4.1 Introduction

In this chapter discusses the result obtained after all the data from input output table

2010 by using formulas in Microsoft excel. Firstly the structure of Malaysia input

output table 2010 will be describe. Then the technical coefficient will be discussed

and multipliers will be estimated. Lastly the backward and forward intersectoral

linkages will be calculated.

4.2 The Technical Coefficient

Technical coefficient is also known as the direct requirement table. This technical

coefficient can be obtain from the transaction table by calculating using the formula.

Technical coefficient shows the fraction of total expenditure of purchase input or

what direct amount needed from the sector at the side. Technical coefficient can be

computed using this simple formula.

aij = xij / xj

aij is shows the quantity of output sector tourism sector absorbed by another sector

per unit in order to produce its output. This aij is also called as the input coefficient of

commodity of sector tourism in to other sector. By using this technical coefficient ,

47

how much a sector need to produce its output in order to satisfy the depending

intermediate demands of other sector to produce its output.

From Technical coefficient Table in Appendix, show the direct requirement of input

needed from tourism sector by other sectors in Malaysia produce output and also the

input need by tourism sector to produce its output from other sector in economy.

Agriculture, forestry and fishery needed output from tourism sector as input by

0.0950 and mining and quarrying need 0.022 input from tourism sector. As for

manufacturing, it needs 0.04 input from tourism sector and electricity, water and gas

needed 0.016 unit of input from tourism sector. Other than that, construction needs

0.015 input from tourism sector and 0.0834 by wholesale and retail trade and motor

vehicle. 0.091 unit of input needed by service sector from the tourism sector and

lastly, tourism sector needed 0.32 from itself to produce its output.

Input needed by sectors from seven subsector of tourism to produce it output is

shown in the same table and also the input required from other sector by the seven

subsector to produce its output. Agriculture, forestry and fishery doesn’t need any

input from amusement and recreational services and also from accommodation.

Agriculture, forestry and fishery needs 0.002 from restaurant and from transportation

by 0.014. Next it needs 0.00 from communication and from finance and insurance

0.05 as input. Agriculture, forestry and fishery need 0.03 from manufacturing of food

and drinks to produce its output.

48

Mining and quarrying need nothing from amusement and recreational services,

accommodation and need very little input from restaurants. Mining and quarrying

needs 0.0012 input from transportation and 0.001 from communication sector. For

finance and insurance it needs 0.001 as input and 0.00 from manufacturing of food

and drink to produce its output. Manufacturing sector needs 0.02 from transportation

.0.00 from communication, 0.013 from finance and insurance and lastly 0.007 from

manufacture of food and drink. As for electricity, water and gas requires no input

from amusement and recreational services, accommodation and restaurant. It requires

0.007 from transportation and 0.005 from communication and also 0.043 from

finance and insurance. Lastly 0.000 from manufacturing of food and drinks.

Construction sector needs 0.008 from transportation, 0.002 from communication,

0.004 from finance and insurance. For wholesale retail trade and motor vehicle ,it

need input from 0.009 from restaurant, 0.02 from transportation ,0.006 from

communication , 0.022 from finance and insurance and 0.028 from manufacturing of

food and drinks. Services sector need 0.0006 from amusement and recreational

services as input to produce its output and 0.002 from accommodation, 0.006 from

restaurant and 0.02 from transportation. From communication, service sector needs

0.025 and 0.04 from finance and insurance. Lastly needs 0.003 from manufacturing

of food and drink. Tourism sector needs 0.004 from amusement and recreational

services as input, 0.005 from accommodation, 0.008 from restaurant, 0.03 from

transportation and from communication, it needs 0.07. Lastly for finance and

insurance it needs 0.093 and 0.11 from manufacturing of food and drinks.

Besides that, the subsector needs input from other subsector of tourism to produce its

output. For amusement and recreational services needs 0.13 input to produce its own

49

output, 0.00 from accommodation, 0.007 from restaurant, 0.008 from transportation,

0.04 from communication, 0.02 from finance and insurance and lastly 0.013 from

manufacturing of food and drinks. For accommodation, it needs 0.12 from restaurant,

0.005 from transportation, 0.017 from communication, 0.019 from finance and

insurance and 0.04 from manufacturing of food and drinks. Restaurant needs 0.047

from restaurant, 0.009 from transportation, 0.032 from communication, 0.037 from

finance and insurance and lastly 0.22 from manufacturing of food and drinks. Next

transportation need 0.01 inputs from restaurant, 0.01 from transportation, and 0.008

from communication. For communication, it needs 0.04 from transportation, 0.32

from communication and 0. 93 finance and insurance. For finance and insurance, it

requires 0.02 from accommodation, 0.01 from transportation, 0.04 from

communication, and 0.3 from finance and insurance. As for manufacturing of food

and drinks, it needs 0.02 from restaurant, 0.001 from transportation and from

communication, it needs 0.01 from finance and insurance and lastly needs 0.27 from

manufacturing of foods and drinks.

4.3 Multiplier Effects.

There are many types of multiplier that can be used to see the economic impact of

tourism sector. In this research, output multiplier and the multiplier effect of export

from tourism sector can be obtain. This multiplier effect will examine the impact of

every additional of RM 1 toward the output and the export of tourism sector.

50

4.3.1. Output Multiplier

The output multiplier shows how much one additional unit of RM 1 in final demand

would give impact on total output

Table 4.1: Output Multiplier of Sectors in Malaysia

SECTORS TOTAL EFFECT

AGRICULTURE, FORESTRY AND FISHERY 27.28

MINING AND QUARRYING 2.89

MANUFACTURING 32.28

ELECTRICITY ,WATER AND GAS 3.77

CONSTRUCTION 2.46

SERVICE SECTOR 18.68

TOURISM SECTOR 78.73

The Table above show the output multiplier to all sectors in Malaysia. This

multiplier shows how much one additional unit of tourist spending to will affect

other sectors’ output in Malaysia. For the additional RM 1 final demand would affect

the total product of agriculture, forestry and fishing by RM 27.28. For mining and

quarrying, RM 2.89 will be effected in total output for RM 1 additional for final

demand. Next for manufacturing the effect on output is RM 32.28 for every

additional of RM 1 in tourist spending. This because the demand for manufacturing

product high which make the production of manufacture sector will have a great

impact from the increase of tourist spending. There is RM 3.77 of effect on electric,

51

gas and water output for every RM 1 spending of tourist in Malaysia. Construction

sector will have the effect by RM 2.46 and gain the lowest effect from every

additional RM 1 tourist spending which means there is no much effect on the

construction for every additional RM 1 tourist spending. For service sector the effect

on total output for every additional RM 1 is RM 18.68. And for tourism sector itself

the effect RM 78.73 from every additional RM 1 of tourist spending. There are a

huge effect on tourism sector as there is additional RM 1of tourist spending. There is

a direct of effect on the tourism sector on tourist spending.

Table 4.2: Output Multiplier on Tourism Subsectors

SECTOR TOTAL EFFECT

Manufacture Of Food And Drinks 5.6620207

Accommodation 0.0119503

Restaurant 0.1063736

Transportation 0.9121306

Communication

0.3924094

Finance And Insurance 3.4132725

Amusement And Recreational Services 0.0002521

In the table above, it can be seen that the manufacture of food and drink have the RM

5.66 which means that the every one unit of changes in final demand would give

52

impact RM5.66 changes in total output. For accommodation, the effect to the total

output is RM 0.01 and for restaurant is by RM 0.11 effect on total output for every

additional of RM 1 in final demand. As for transportation, the effect on total output is

RM 0.91 for the every additional RM 1 in final demand and for communication, the

effect is by RM 0.30 for total output. Other than that, the effect on finance and

insurance is RM 3.41 for every addition of RM 1 in the final demand. The

amusement and recreational services, there were very only a very mild impact on the

total output for every RM 1 changes in final demand.

4.3.2 Export of Tourism Sector

Table 4.3: Export of Tourism Multiplier

SECTORS TOTAL EFFECT

AGRICULTURE, FORESTRY AND FISHERY 10.851

MINING AND QUARRYING 1.112

MANUFACTURING 12.440

ELECTRICITY ,WATER AND GAS 1.453

CONSTRUCTION 0.947

SERVICE SECTOR 7.197

TOURISM SECTOR 30.201

The Table 4.3 show the export of tourism multiplier which show the effect on one

additional unit of export of tourism sector on total output. The agriculture, forestry

and fishery will be effect by 10.85 per cent. As for mining and quarrying, the

53

additional of every RM 1 in export of tourism will effect RM 1.18 of total output.

For manufacturing sector every spending RM 1 will effect RM 12.44 of the total

output. Other than that, the electricity , water and gas will be effect by RM 1.45 for

every RM 1 additional of export of tourism sector and construction is effected by

RM 0.95 for every additional of RM 1 in total output. The services sector, for a every

RM 1 will affect the total output by RM 7.20 and for tourism sector of itself will be

effect by RM 30.20 for every additional of RM 1.00.

Table 4.4: Export of Tourism Sector Multiplier on the Tourism Subsector

SECTOR TOTAL EFFECT

Manufacture Of Food And Drinks 3.3546

Accommodation

0.000000000

Restaurant

0.000000000

Transportation

0.507394614

Communication

0.098669614

Finance And Insurance

0.499719470

Amusement And Recreational Services

0.000006656

For the export based multiplier, it can been that, for every additional of RM 1 in final

demand, the impact on the manufacture of food and drinks are RM 3.35 in the total

export. There is no any impact for both accommodation and restaurant in export for

changes in final demand. As for transportation the effect on the export is RM 0.51 for

54

every RM 1 and for communication is by RM 0.10 and also for finance and

insurance by RM 0.50 impact of export for every RM 1. There is a very low changes

in the amusement and recreational services.

4.4 Inter Linkages Between Tourism And Non Tourism Sector

Table 4.5: Backward and Forward Linkages between Sectors

SECTORS BACKWARD

LINKAGES

RANK FORWARD

LINKAGES

RANK

Agriculture,

Forestry And

Fishery

1.518452

15

2.036061179 5

Mining And

Quarrying

1.184986

17

1.405304658 12

Manufacture Of

Food, Drink

And Tobacco

2.441078

1

2.055866887 4

Manufacture Of

Textile, Apparel

And Leather

Product

1.672664

10

1.146554923 11

Other

Manufacturing

1.637305

11

3.789731653 1

Electricity,

Water And Gas

1.535680

13

1.774424797 8

Construction

1.851662

6

1.282527422 14

Wholesale &

Retail Trade

And Motor

Vehicle

1.542880

14

2.011094909 7

Accommodation

1.1890467

4

1.062914962 16

Restaurants 1.995229 2 1.278613422 15

55

Transportation

1.854267

7

1.650951640 8

Communications

1.953311

3

2.087060267 3

Finance And

Insurance

1.860486

5

2.386003946 2

Real Estate And

Ownership Of

Dwelling

1.686762

9

1.325956632 13

Private Sector 1.544019

12

2.020718828 6

Amusement And

Recreational

Services

1.826980

8

1.154627648 10

Public Services 1.5033 16

1.036149424 17

In the table above, shows both backward and forward linkages between tourism

sector and non-tourism sector. The higher value in backward linkages than forward

linkage means that demand for input is more than its supply The manufacture of

food, drinks and tobacco have the highest backward linkages which is 2.44 and its

forward linkages is 2.055. This means that the manufacture of used more input from

other sector to produce its input. Secondly the restaurant have 1.99 backward

linkages and 1.27 for forward linkages. Followed by communication with backward

linkages at 1.95 and forward linkages 2.087. For communication case,

56

communication sector need less from other sector to produce its output. Same goes

for accommodation for backward linkages 1.89 and forward linkages is 1.06. Next

for finance and insurance the backward linkages 1.86 and forward 2.37. As for

construction backward linkages is 1.85 and forward linkages is 1.28. After that, for

transportation the backward 1.85 and forward is at 1.65. For amusement and

recreational services its backward linkages is 1.82 and forward linkages 1.15

followed by real estate 1.69 for backward and 1.33 for forward linkages. At 10th

place manufacture of textiles, apparel and leather product have 1.67 as the backward

and 2.055 for forward linkages and as for other manufacturing the backward linkages

1.63 and forward linkages is 3.79. Private sector is recorded 1.544 as backward and

2.02 as forward linkages. Next, as for electricity, water and gas have 1.535 is

backward and 1.77 for forward linkages. Wholesale and retail trade and motor

vehicle is 1.54 for forward linkages and 2.011 for backward linkages. Agriculture,

forestry and fishery have 1.52 for backward linkages and 2.036 as forward linkages.

Lastly public services have 1.51 for backward and 1.036 as forward linkages and

mining and quarrying have 1.18 as backward and 1.41 for forward linkages.

57

Chapter 5

Conclusion and Recommendation

5.1 Introduction

In this chapter, a summaries will be done according to the literature review, research

methodology and the result analysis. Besides that the research objective will be

discussed according to the result obtain from the previous chapter. In the last part,

according to the result obtain, the expectation and future recommendation will be

given for future use. The I-O analysis is used to see the impact of tourism sectors in

economic growth. Thus the result generated will be used as a reference in future for

policy making regarding the tourism sector.

5.2 Summary of Finding

5.2.1 Research Summary

In this research the impact of tourism sector towards economic growth was

analysed. Using the Malaysia input output table 2010 which obtained from the

Department of Statistic Malaysia and to obtain the result input output analysis was

used. Firstly the 124 commodity x 124 commodity will be aggregated in to 8 main

sectors. To fulfil the objectives of the research, multiplier effect and the backward

and forward linkages were used on the sector related to the tourism and non-tourism.

58

5.2.2 Summary of Finding

5.2.2.1 Objective one:

In the first objective, the multiplier impact have been examined to see the effect of

the changes of final demand on the total output and same goes for the export

multiplier to see the effect on the tourism based export. Thus in the output multiplier

result there are a significant effect in for manufacture of food and drinks where every

additional of RM 1 final demand would impact total final demand as much as RM

5.66 and next shows that the finance and insurance have RM 3.41 of final demand

effect if there is an additional of RM 1 in final demand. For amusement and

recreational services there is no effect in the total final demand if there is an

additional RM 1.

5.2.2.2 Objective two

As for objective two the inter linkages between sector are examined to see the

interlinkage between tourism related sector and non-tourism sector. Tourism sector

with high linkage effects have big potential to boost economic and will directly

improve the economic growth. The backward linkages will shows the demander side

of the sector and as for forward linkages it shows the supplier side of the sectors.

From the result we can see that the manufacture of food, drinks and tobacco have the

highest demand of input from other sectors to produce its output. The mining and

quarrying have the lowest backward linkages with other sectors shows that it doesn’t

rely on other sector to produce it output. For forward linkages, other manufacturing

sector except food, drink and tobacco supply its output as input to other sectors to

59

produce its output and public services have weakest forward linkages which means

the other sectors doesn’t use public services output as its input.

5.3 Research Implication

In this study the influence of tourism sector on economic growth is shown. Thus this

research can be used by many parties in order to obtain some idea or framework on

how input output can be used and the result gained from the research done for many

purposes. The result of this research will give an idea to improve the tourism sector

in Malaysia. This can be used by academicians, researchers, policy makers, tourism

ministry and many others stakeholders.

5.3.1 Researchers and Academicians

This study can be used by the researchers or academician from higher institution to

do research on the tourism sector. Thus the method that been used in the research is

to find the direct, indirect and induce effect of multiplier on the tourism sector.

Besides that the backward and forward linkages were used to see the strength of

linkages between the tourism sector and non-tourism sector.

5.3.2. Ministry of Tourism.

Many countries are taking tourism as an engine to develop the country in term of

economic growth and economic development. Malaysia also have creates many

policy and project for tourism sector. This research would help to see the impact of

tourism sector on economic growth, this research can be used as a guideline to create

policies that would improve the development of tourism sector as well as Malaysia

60

economy. After seeing the effect of the multiplier, the policy maker can bring up

policy that could help the extent of tourism industry.

5.3.3 Private Sector, Local Businesses and People.

Private and local businesses can use this research and see the prospect in this

business. By this, local business and tourism related private sector could reorganise

the tourism product and marketing structure accordance to the need, current trend

and demand of tourist. By fulfil the need of tourist, the local business could develop

their business accordingly and gain profit that could also contribute to the economic

growth. Besides that, the development business would help to create job opportunity

and will reduce the unemployment rate in Malaysia.

5.4 Recommendation

There are many ways to improve the tourism sector in Malaysia. By looking at the

rise in tourism sector, it create opportunity to improve the development of tourism by

diversifying tourism active. There few suggestion that can be used to improve the

development of tourism sector.

Government should increase their effort in improving the economic impact of

tourism sector.

Government should promote activities that should be directed towards rising

the awareness on the important in improving the tourism sector and also

encourage tourist to visit Malaysia

Improvements to attraction and present markets and developing tourist

infrastructure.

61

Government should create inter-ministerial committees include the

representative from tourism sector in order to monitor and coordinate the

implementation of tourism policy

Malaysia government must make improvements in procedures for the

issuance of visas, border formalities and customs regulation to ease

international travel.

Besides government, private sector together with other stakeholders should

collaborate in order to develop tourism. In order attract tourism around the world,

there is a needed for a strategy that involve customer marketing to promote tourism

product offering which must be different than other countries. For example

promoting tour package with other tourism packages such as welfare tour packages

with tourism homestay. This likely to be an “added value” for tourist product and

will contribute to the extension of tourist visit to Malaysia.

Other than that, beautiful and unique need to be explored and introduce natural

product that are invaluable to national treasure such as beautiful flora and fauna. This

can increase the demand for tourism product to attract more tourists. Moreover as

Malaysia is rich with racial diversity, it’s important to focus on environmental and

socio culture and integrate it international tourism policies and plans for tourism

development by ministry of tourism Malaysia. In realizing the vision of 2020 to

develop nation and introduce Malaysia at the international level, government and

private sector should collaborate. Multilateral bilateral, and sub-regional cooperation

should be strengthened.

62

In conclusion, the above recommendation are ways to improve Malaysia tourism

sector for tourist attractions. However, tourism sector need to be improve and

develop accordance needs, demands, current trend, tastes and quality of tourism

sector.

5.6 Conclusion

In this study, the impact of Malaysia tourism on economic growth. In this research

the importance of tourism on in improving the economic is highlighted and tourism

effect on its sectors and also indirectly towards non tourism sector. Tourism sector is

a collaboration several sectors and these functions of these sectors will developed

Malaysia tourism sector with the help of government and private sectors intervention

by policy making and enforcement of law. This research will be good material for

policy maker, tourism ministry researchers and others to see the effect of tourism and

how to develop it further.

The method used in this research is input output analysis, a method used to evaluate

the economic impact at regional and state level. Multiplier effect is commonly used

in this method to find the significant level in generating output and export of tourism

sector. There are few information that we can obtain by using this multiplier. We

can see influence of Malaysia tourism in order to generate output and export from

tourism sector. Other than that, the strength of linkages between sectors can be

determine using backward and forward linkages This tourism sector have strong

63

linkages among other sectors. Policy maker can use this information as a guide to

make policies on tourism sector that can help in the extension tourism industry and

promote the industry to next level to attract tourist. From the result of this research

we can conclude that tourism sector are significantly impacts on the economic

growth by generating the output and the export from tourism sector. Lastly the

development of tourism sector can be achieved if there collaboration between various

parties and also promoting tourism by implementing effective policies and projects to

attract tourist and by 2020, Malaysia can be a develop nation by 2020.

64

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